Glossary

Smart Contract

Plain-language definition Crypto glossary

Key takeaways

A smart contract is a program stored on a blockchain that executes automatically when its predefined conditions are met, with the outcome enforced by the network rather than a bank, broker or court.
Once deployed to a platform such as Ethereum, anyone can call its functions, and every node runs the same code to reach the same result so it cannot be quietly changed.
Smart contracts are the building blocks of DeFi, NFTs and DAOs, but their public code means bugs are exploitable and a flaw can be drained before it is fixed.

Definition

A smart contract is a program stored on a blockchain that runs automatically when predetermined conditions are met, without needing a person or company to execute it manually. It can hold funds, enforce rules and interact with other contracts, all governed by code that is typically visible and, once deployed, difficult or impossible to change.

Why it matters

Smart contracts are what make decentralized finance, decentralized exchanges and many token systems possible, letting agreements execute automatically instead of relying on an intermediary. That automation is also a risk: if a contract’s code contains a bug or an exploitable flaw, it will execute exactly as written, bug and all, and losses from that kind of exploit have historically been difficult or impossible to reverse.

Example

A decentralized exchange swap, described in our entry on DEX, is executed by a smart contract rather than a human trader matching orders.

This is educational information, not financial advice. Coingsty does not recommend buying or selling any asset.

FAQ

Frequently asked questions

What makes a smart contract "smart"?

It automatically executes its coded logic when predefined conditions are met, without needing a bank, broker, or court to enforce the outcome. Because the code and its results live on the chain, the network itself guarantees the contract behaves the same for everyone.

Can a smart contract be changed after it is deployed?

Once deployed, the contract runs identically on every node and cannot be quietly altered, which is part of what makes it trustworthy. This immutability is a strength, but it also means a coding flaw cannot be easily patched after the fact.

Are smart contracts risky?

They remove the need to trust a middleman, but their code is public and exploitable, so a bug can be drained by anyone before it is fixed. This is why auditing and careful development are important, and why users should understand a contract's risks. This is educational information, not financial advice.